S&P reaffirms rating despite political worry

S&P reaffirms rating despite political worry

Cambodia has retained its B credit rating despite ratings company Standard & Poor’s citing the country’s ongoing political standoff as a “major” constraint.

S&P affirmed Cambodia’s B/B credit rating last week, labeling the country as having a strong and stable long-term and short-term outlook.

Engagement of international donors, a “modest” debt level of 25.4 per cent of gross domestic product, an expanding tourism sector and strengthening garment exports were key factors behind Cambodia retaining its rating, the ratings firm said.

However, S&P also expressed concerns for Cambodia’s low average income level of $1,040 per capita and the government’s “non-transparent” policy making, saying these are “persistent” rating constraints.

“We see less than a one-in-three probability that the rating will move up or down in the next 12 months,” the report released on Saturday said.

S&P warned that if the stalemate between the opposition Cambodia National Rescue Party and the ruling Cambodian People’s Party deteriorates “to the point where social stability is threatened”, the B rating may be downgraded.

“The government has not shown a tested and functioning mechanism in leadership succession . . . Although demonstrations have not resulted in widespread violence, in our view, the risk to political stability has heightened.”

But In Channy, president and CEO of Acleda Bank, is confident Cambodia’s rice and garment export markets and micro-economies in tourism will continue to influence strong growth.

“In terms of the risks S&P have identified, I think they are right to be concerned . . . [But] as a country we are certainly moving in the right direction and it is shown in S&P’s stable outlook for Cambodia.”

Business Research Institute for Cambodia CEO Hiroshi Suzuki said he had not yet seen any adverse affects on Cambodia’s economy resulting from the political tensions.

“If S&P thinks the political situation is a critical issue, S&P should give ‘negative’, instead of ‘stable’,” he said.

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